Journal ArticleDOI
Moral Hazard in Teams
TLDR
In this article, the authors study moral hazard with many agents and focus on two features that are novel in a multiagent setting: free riding and competition, and show that competition among agents (due to relative evaluations) has merit solely as a device to extract information optimally.Abstract:
This article studies moral hazard with many agents. The focus is on two features that are novel in a multiagent setting: free riding and competition. The free-rider problem implies a new role for the principal: administering incentive schemes that do not balance the budget. This new role is essential for controlling incentives and suggests that firms in which ownership and labor are partly separated will have an advantage over partnerships in which output is distributed among agents. A new characterization of informative (hence valuable) monitoring is derived and applied to analyze the value of relative performance evaluation. It is shown that competition among agents (due to relative evaluations) has merit solely as a device to extract information optimally. Competition per se is worthless. The role of aggregate measures in relative performance evaluation is also explored, and the implications for investment rules are discussed.read more
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Journal ArticleDOI
Efficiency in partnerships
TL;DR: In this paper, the necessary and sufficient condition for a partnership to be able to sustain efficiency when the output is stochastic was provided, and it was shown that only the level of the average liability of the partnership is important; the individual levels of liability are irrelevant.
Journal ArticleDOI
The monitoring role of insiders
TL;DR: In this paper, the authors show that less independent boards can sometimes be more effective at monitoring than boards with inside directors, if the boards cannot commit ex ante to monitoring ex-post.
Journal ArticleDOI
Yardstick competition in a Federation: Theory and Evidence from China
TL;DR: In this article, the authors test empirically for competition among Chinese provinces embedded in a centralized political system and propose a rigorous empirical framework which takes into account heterogeneity, endogeneity problems and spatial error dependence.
Journal ArticleDOI
Knowledge creation as a square dance on the Hilbert cube
Marcus Berliant,Masahisa Fujita +1 more
TL;DR: In this article, a micro-model of knowledge creation through the interactions among a group of people is presented, where the heterogeneity of people in their state of knowledge is essential for successful cooperation in the joint creation of new ideas.
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The Rise of Individual Performance Pay
Ola Kvaløy,Trond E. Olsen +1 more
TL;DR: In this paper, a repeated game model of relational contracting is presented to analyze the conditions for implementing peer-dependent incentive regimes when agents possess indispensable human capital, and it is shown that the larger the share of values that the agents can hold-up, the lower is the implementable degree of peerdependent incentives.
References
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Posted Content
Production, information costs, and economic organization
Armen A. Alchian,Harold Demsetz +1 more
TL;DR: In this paper, the authors present a set of reprint articles for which IEEE does not hold copyright. Full text is not available on IEEE Xplore for these articles, but full text can be found on the Internet Archive.
Journal ArticleDOI
Moral Hazard and Observability
TL;DR: In this article, the role of imperfect information in a principal-agent relationship subject to moral hazard is considered, and a necessary and sufficient condition for imperfect information to improve on contracts based on the payoff alone is derived.
Posted Content
The Economic Theory of Agency: The Principal's Problem.
TL;DR: The canonical agency problem can be posed as follows as discussed by the authors : the agent may choose an act, aCA, a feasible action space, and the random payoff from this act, w(a, 0), will depend on the random state of nature O(EQ the state space set), unknown to the agent when a is chosen.
Journal ArticleDOI
Reexamination of the perfectness concept for equilibrium points in extensive games
TL;DR: The concept of perfect equilibrium point has been introduced in order to exclude the possibility that disequilibrium behavior is prescribed on unreached subgames [Selten 1965 and 1973]. Unfortunately this definition of perfectness does not remove all difficulties which may arise with respect to unreached parts of the game.
Journal ArticleDOI
Good News and Bad News: Representation Theorems and Applications
TL;DR: In this article, a notion of "favorableness" of news is introduced, characterized, and applied to four simple models: the arrival of good news about a firm's prospects always causes its share price to rise, more favorable evidence about an agent's effort leads the principal to pay a larger bonus, buyers expect that any product information withheld by a salesman is unfavorable to his product, and bidders figure that low bids by their competitors signal a low value for the object being sold.